Once the gaming industry's biggest extravaganza, the E3 conference this year was both smaller and a whole lot duller, writes Business 2.0's Michal Lev-Ram.

(Business 2.0 Magazine) -- Remember the Electronic Entertainment Expo -- that action-packed madhouse of a video game conference that was once the industry's biggest event of the year? It took place again this week, only this time it was much smaller, tamer and, overall, a big snooze-fest.

After complaints that the Southern California extravaganza had gotten too big and expensive, organizers turned it into an invitation-only event and renamed it the "E3 Media & Business Summit." Instead of the sprawling Los Angeles Convention Center, the confab was hosted at a series of hotels in nearby Santa Monica.

At this year's invitation-only E3 conference, a number of mobile gaming startups were left out. One rejected company responded by starting its own confab.

This may all sound fine and good, except for two things: This year's E3 didn't generate any of the headline-grabbing product announcements it was known for in years past. And a whole lot startups shut out of this year's conference are not happy about it.

"It's become exclusive and elitist," griped David Gosen, CEO of mobile game player I-Play, to members of the media earlier this week. In a subsequent interview, Gosen said his London-based company had sponsored a booth at E3 for the last four years.

I-Play wasn't the only mobile gaming company whose invitation got lost in the mail. Greystripe, a San Francisco-based ad-sponsored gaming startup, and Mobliss, a mobile game provider headquartered in Seattle, were also left out.

So why does this matter? Some of the hottest innovations in gaming are happening now on mobile phones -- and startups are often at the forefront of the latest cutting-edge technology.

Indeed, research firm Gartner predicts worldwide mobile game revenues will reach $4.3 billion in 2007, a 50 percent increase from last year. By 2011 the industry will grow to nearly $10 billion.

And this year has seen one of the few mobile gaming IPOs: publisher Glu (Charts) sold $84 million in stock in March. Its shares are up 20 percent.

"In the past, [E3] has been a fantastic opportunity to drive awareness of mobile gaming," Gosen said.

E3 organizers at the Entertainment Software Association didn't respond to repeated requests for comment. But in announcing plans to downsize, E3 officials said their mega-show was "no longer necessary or efficient."

Media reports said the conference was struggling to compete and cost too much. Some 400 companies reportedly exhibited in its heyday, in some cases shelling out millions of dollars to operate pavilions.

But this year's smaller gathering turned into a sleeper. Microsoft (Charts, Fortune 500) kicked off the show with a Tuesday evening press conference (held in a high school amphitheater) to promote upcoming Xbox 360 games.

But the biggest news in gaming leaked before the show even started. Sony (Charts) is cutting the price of its PlayStation3, which has struggled to compete with Nintendo's Wii and the Xbox 360, by $100. The console now costs $500.

Bender says E3 has been downsized to the point of appearing almost empty, especially on the exhibitor floor, where no more than three dozen companies reportedly had booths.

Bender agrees that E3 got too big for its own good. He just thinks organizers made the mistake of going to the other extreme this year.

"It's the difference between walking into the Atlantic Ocean and stepping into a swimming pool," he said.

For his part, I-Play's Gosen did what any entrepreneur who sees an opportunity would: he launched his own mini-confab, called Mobile Games Insider, to give companies left out of this year's E3 a chance to showcase themselves. Like any would-be disruptor, he opened his forum a day before E3 and hosted it at a private beach club in Santa Monica -- not far from his bigger, better-known competitor.